Inquiry rips into Diversa: 'All profit, no responsibility'

Diversa Trustees deflected responsibility at a parliamentary inquiry that criticised its governance and structural problems, particularly its role in the failed First Guardian Master Fund, in which members invested about $240 million.

At the recent Parliamentary Joint Committee on Corporations and Financial Services inquiry, Diversa's leadership team stood its ground, claiming that the root cause of First Guardian's failure was fraud and that this is the reason why it is seeking a government bailout to make members whole.

Vincent Plant, Diversa's independent director and chair, blamed the financial advisers who recommended the products.

"Diversa had two main responsibilities. The first was to conduct due diligence on First Guardian before adding it to the list of available investments. The second was to monitor First Guardian. Super trustees like Diversa must fulfil these responsibilities in the best interests of members, the people who have their money saved in super," he told the committee panel.

Plant stressed that the liquidator's report into First Guardian "makes it clear that the cause of First Guardian's collapse was fraud by Falcon Capital."

"It wasn't an investment which lost money. It wasn't bad management or bad forecasting; it was fraud. The fraud lay primarily in the dishonest application of First Guardian's assets, but also in the dishonest and ongoing misrepresentation of First Guardian's value. That fraud was perpetrated on individuals who invested in First Guardian," he said.

Committee chair Deborah O'Neill criticised Diversa for not being in the same position as Macquarie and Netwealth, which have already admitted to being "part of the equation of failure and have replaced lost funds immediately."

"It seems to me, Mr. Plant, that you are in a position where Diversa is continuing to deflect responsibility. Clearly, there are structural problems..." she said.

The panel went on to press the management team on how its due diligence in onboarding and monitoring First Guardian differed from Netwealth's and Macquarie's processes.

Rachel Griffith, the general manager of investment oversight, explained Diversa undertook its standard due diligence process in 2020, including consideration of independent research reports from SQM Research, reviews of product disclosure statements, and ongoing annual stress testing.

Diversa, however, did not review First Guardian's constitution before onboarding the product, although she said the document was reviewed after the fund was frozen.

Asked what additional steps Diversa performed beyond reviewing third-party research, Griffiths said the platform had raised questions with the operator regarding the fund's growth and relied on research reports that are widely accepted across the industry.

Committee members challenged the adequacy of those processes, noting that rival platform Netwealth has already acknowledged deficiencies in its due diligence framework relating to First Guardian and questioning why a 50% holding limit was never enforced despite being considered an important safeguard.

"You list it. You let it rip. All profit, no responsibility. That's what it looks like to me," said O'Neill.

The panel dug further into Diversa's governance issues, referring to one APRA-imposed licence condition in 2023 and another one applied last December, relating to investment governance frameworks and practices, including oversight of platform investment options made available to members, particularly around First Guardian.

ASIC is also suing Diversa for nearly $250 million for the First Guardian calamity.

A separate investigation ASIC launched in June into Diversa alleged over the possible misuse of members' money and a series of undisclosed payments to the group.

Committee member Paul Scarr asked Plant: "What confidence can members have that their funds are safe with Diversa as a trustee?

Plant replied: "Well, they should have a high level of confidence because of the degree to which we are actually looking after our members' funds."

O'Neill cut off Plant, saying: "You're going to say that sentence in all honesty, why then are you fighting so hard against justice for the victims of First Guardian and providing them, returning them their money?"

"If you want people to trust you, money is going to talk in this situation, Mr. Plant, and you guys seem to be hanging on to it pretty tightly for yourselves, and not giving it to the people who have suffered a great loss because of your failure of onboarding, governance, and asking the questions to get the transparency necessary to see what was going on inside First Guardian," she said.

Plant said, "no one can predict fraud in advance" and that they are "not clairvoyants".

"That's why the SIS Act has a specific provision to say that in cases of fraud, there is protection for members, and that's what we're applying to the minister to protect the members," Plant said.

"Which means," O'Neill retorted, "Diversa wants taxpayers to bail you out for a failure of your processes, which have so far caught you up in the ASIC net to the tune of a quarter of a billion dollars, and have got imposed conditions on your licence from APRA."